The Honorable William M. Thomas, Chairman
House Committee on Ways and Means
1102 Longworth House Office Bldg.
Washington, DC 20515
The Honorable Charles B. Rangel, Ranking Member
House Committee on Ways and Means
1106 Longworth House Office Bldg.
Washington, DC 20515
The Honorable Charles E. Grassley, Chairman
Senate Committee on Finance
219 Dirksen Senate Office Bldg.
Washington, DC 20515
The Honorable Max S. Baucus, Ranking Member
Senate Committee on Finance
219 Dirksen Senate Office Bldg.
Washington, DC 20515
Re: Internal Revenue Code Section 409A
Gentlemen:
The American Institute of Certified Public Accountants requests that Congress amend Internal Revenue Code section 409A by postponing its effective date, and that your committees hold hearings to consider narrowing the measure's scope or repealing it entirely. We are in complete agreement with the American Bar Association Section of Taxation's position in this matter as expressed in their July 31, 2006, letter to you.
As enacted by the American Jobs Creation Act of 2004, Code section 409A created new rules for: (1) timing of elections to defer compensation under a nonqualified deferred compensation plan; (2) determining when distributions can be made under a nonqualified deferred compensation plans; and (3) funding of nonqualified deferred compensation arrangements. Violation of the rules results in current taxation, a 20 percent additional income tax imposed upon the service provider, and interest.
The members of the AICPA's employee benefits tax group provide professional services in employee benefits, compensation consulting and plan administration. We commend the Treasury and IRS for all of the guidance that they have produced to date. In our February 13, 2006, comments to the Treasury Department and the Internal Revenue Service on the proposed 409A regulations (attached), we suggested extending the deadline for amending plan documents to comply with new section 409A and its regulations to December 31 of the calendar year following the year in which regulations are finalized.
We feel that at the very least, this extension of the deadline for documentary compliance is necessary to allow plan sponsors and their advisors to understand and interpret the final regulations, particularly in light of the complex issues surrounding section 409A. An extension of the effective date for all provisions, not just for documentary compliance, would be even more appropriate. These rules apply to a broad range of nonqualified deferred compensation arrangements. To avoid significant penalties, these plans need more time to comply with the new rules. In addition, we believe that delaying the effective date of section 409A to allow further investigation about the potential impact of these new rules and the costs of compliance is advisable. We feel strongly that there is merit in considering a limit in the scope of section 409A, and even complete repeal of its provisions.
If we can be of further assistance, of if you wish to discuss our concerns in greater detail, please contact me at tpurcell@creighton.edu; G. Edgar Adkins, Jr., Chair of the AICPA Section 409A Proposed Regulations Working Group at eddie.adkins@gt.com; Sandy Wheeler, Chair of the AICPA Employee Benefit Tax Technical Resource Panel at sandra.ormsby.wheeler@us.pwc.com; or Lisa Winton, AICPA Technical Manager, at lwinton@aicpa.org.
Sincerely,
Thomas J. Purcell, III
Chair, AICPA Tax Executive Committee